Peter: 'If I was a bit more shy and retiring, I might have been intimidated into not complaining' Photograph: David Levene

How sick or disabled do you need to be to qualify for state support? Is it enough to be blind or do you also need to be deaf? Is it enough to have been so seriously injured in a car accident that you can no longer walk without extreme pain, or do you have to be bed-bound?

These are the sort of questions that a new, computer-led system for determining eligibility for sickness benefit has been trying to resolve for the past year. Judging by the mounting pressure on appeal tribunals, where hundreds of thousands of people have flooded to contest the decisions, the system is not working smoothly.

There was a 56% rise during 2010/11 in the number of people appealing rulings that they are fit for work and the tribunals system has become overloaded. Since the system was trialled at the end of 2009, at least 390,000 people have gone to appeal; tribunal courts have been forced to open on Saturdays and to increase staff by 30% since January 2010, to deal with the backlog; the cost of these appeals is expected to reach £50m a year by the end of this month. The scale of the problem is startling; the tribunals service has radically increased its capacity in order to cope with a possible half a million new cases over the next 12 months.

During the past year these tribunals have become the frontline in a nationwide battle against this new system designed to assess the nature of disability and illness, variously described by MPs and campaigners as "chaotic" and "not fit for purpose".

Peter, a computer analyst (who prefers not to give his real name because he is still appealing against his ruling), was forced to give up his job in October 2008 when he could no longer see the screen well enough to work. He was formally registered blind in 2009, after 20 years of gradually deteriorating eye-sight. Because he was no longer able to do his job, he applied for the new incapacity benefit, employment and support allowance.

Despite his blindness, he was refused the benefit, and told he was fit to work. In order to qualify for the benefit, you need to be awarded 15 points in the new test, the work capability assessment. He scored nine points, which means he was denied both the benefit and also the chance of getting targeted extra support to help him find appropriate work. Had he been deaf, as well as blind, he would have secured the extra points, he was told.

He appealed against the decision, and a panel overturned it in March 2011, concluding that he should not be expected to find work. Then in October 2011, he was invited for another test, and a few weeks later was again told he didn't qualify for the benefit. He has launched a second appeal process, and is enraged at the time and money wasted on repeatedly sending him through the system.

His experience of winning an appeal, only to find that he has been invited to have his capacity to work retested, is a common one. Because so many people have lodged appeals, his case will not be heard until September.

"They have changed the system to catch out more people. I think they try their damnedest to avoid paying," Peter, 59, says. "They knew my condition was permanent and degenerative, so if it's true in 2009 that it's permanent and degenerative, then it has to be true in 2011. The consultant ophthalmologist has written to tell them that."

Unsettled by being unemployed, and missing his work in IT, he went to the volunteering centre in Windsor, to offer his services for free, but he was told that he wouldn't be suitable for any of the positions on offer because of his vision problems. So he remains stuck – officially classified fit to work, but in practice unable to find even an unpaid role. He feels that he has been classified as "one of George Osborne's scroungers".

"These absurd and inaccurate decisions, leading to time-consuming and expensive eventual correction, leave the applicant feeling both demeaned by the process and depressed by the heartlessness, if not nastiness, of the government," he argues. "It's an extremely complicated process to go through. I am not a shy person and I do stand up for myself. If I was a bit more shy and retiring I might have been intimidated into not complaining."

Many people caught up in the chaos agree that it is sensible to check whether claimants are really eligible for the incapacity benefit (which is about £99 a week, about £30 a week more than jobseeker's allowance) but feel angry at the flawed process, which can lead to decisions being made and overturned repeatedly. A select committee report into the system's failings stated that it inspired "fear and anxiety among vulnerable people".

In Cambuslang, on the outskirts of Glasgow, Marie, 31, (who also asks that her real name should not be printed because of the ongoing appeal), is still struggling to recover from a car accident four years ago that damaged a disc at the base of her spine. She had to give up her job as a dispensing chemist because the injury made her unable to stand for prolonged periods, and prone to falling. She relies on her husband to help her get up and to wash, and she says she has "bad days and really crappy days". The pain, and the effect the injury has had on her life, has triggered depression.

At her medical assessment in 2010, she was given zero points, and was told to go to the jobcentre and start applying for jobs. "The guy in the jobcentre could see how difficult it was for me to walk. He said I shouldn't be there, and told me there was no way he was going to send me out for interviews," she says.

On appeal, in March 2011, the initial decision was overturned and she was granted 15 points, enough to qualify for the benefit, in recognition of the profound difficulty she was having walking. But last December, she was asked to return for another assessment of her capacity to work and was refused the benefit a second time. "The test was the same, very tick-boxy," she says.

As part of the test, the staff employed by Atos Healthcare, the French-owned company paid £100m a year to carry out the tests on behalf of the government, ask claimants sideways questions about their life, entering the data into a computer, which uses their answers to build up a picture of their capacity to hold down a job. Questions about which television programmes a claimant regularly watches might, for example, be taken as evidence of their ability to sit and concentrate for half-hour periods, and by extension their employability, while the answer to the question "do you clean your teeth regularly?" might be used to understand both someone's manual dexterity and their mental state. Marie thinks that her admission that she reads stories to her three-year-old son (born shortly after the car accident) was taken wrongly as evidence that she was able to sit for extended periods of time.

"I'm not reading him Moby Dick, just five-page-long picture stories," she says, frustrated by the apparent absurdity of the system. She cried for two days, she says, after getting the second refusal. She has launched a second appeal, backed by her doctors and her local MP.

Both the current and preceding governments were determined to cut the cost of the incapacity benefit bill, and the new test has different and tighter criteria, making it more difficult to be judged eligible for employment support allowance (ESA). Figures published last week showed that 37% of claimants of the old incapacity benefit who are reassessed are declared fit for work and have their sickness benefit removed. The government hailed these preliminary figures (which do not take appeals into account) as evidence that their policy is working; disability rights groups said the statistic simply showed that the test had become unacceptably harsh. The implication that those found capable of working must have previously have been wrongly or even fraudulently claiming benefits is repeatedly cited by claimants as one of the most distressing aspects of the policy.

"It's terrible how it makes you feel. I feel sorry for anyone who has to go through this system, I really do," Marie says. "I'd love to return to work. I could be earning a really good wage, but right now I'm not fit enough, and I could damage myself more."

The pressure on tribunals shows that these cases are far from exceptional. Of the 390,000-plus appeals that have been lodged against decisions not to grant the benefit, just under 40% have been successful. The most recent figures (April to October 2011), which emerged on monday via a Freedom of Information request lodged by the mental health charity Mind, indicate that the success rate has jumped to 46% of decisions being overturned in the claimant's favour.

At Fox Court in central London, the social security tribunal reception area feels like a doctor's waiting room. Some people breathe heavily and uneasily; others make their way uncomfortably to a seat, leaning on crutches, or helped by friends. Many look very unwell. They are here so that judges and doctors can assess definitively how unwell they are, and rule on whether they should be resting at home, or sent back out into the workplace. Essentially, this is where new definitions of what it is to be unwell and disabled are being forged.

District tribunal judge Mark Hindley sits with a doctor and spends the day painstakingly trying to work out who is too sick to be forced to find work. First he listens as a mother of three explains in Arabic, through a translator, that she is unable to work because of depression and a back problem. She brings out a plastic bag and shakes out a pile of sleeping pills, unidentified pink tablets and co-codamol, explaining, wheezing painfully as she talks, that the tablets make her so drowsy that she has to spend much of the afternoon lying on the sofa.

Hindley explains that the ruling will be made according to their judgment of how severely her medical problems prevent her from carrying on with a normal existence. "It is not what your medical problems are but what those medical problems stop you from doing," he tells her. He and the doctor are unable to come to an immediate decision and promise to let her know in writing.

Next they see an Albanian man in his 50s who has spent most of his career working as a hairdresser, but hasn't worked since he moved to this country because of a knee problem, which makes it painful to stand for long periods. "Every minute that I stand, I am in pain," he tells the tribunal, through a translator.

The doctor is curious about the clean state of the rubber fitting at the bottom of his crutch, and wonders how frequently he uses it; she also questions whether he is using it on the correct side to support his knee. They reject his appeal because, although they accept that his knee is problematic, this scores him only six of the necessary 15 points required for sickness benefit.

"We accept that it is hard to stand for any period. We don't think you have any problems with walking," he is told. Red-faced, and visibly angry, he gathers his papers and limps from the room.

Later they hear from a 47-year-old mother-of-three from north London who was forced to give up her job as a school support officer because of arthritis in her lower back and the depression that followed her increasing inability to move without pain. It becomes clear that when she went for her initial work capability assessment, she was stoical about her condition, rather than labouring the extent of her problems, and as a result, failed to score sufficient points to be granted ESA.

"In my head I feel that I can do more than I can actually do. A lot of it was pride. I think I held a lot back from my children, but the pain was always there in my lower back and groin," she says. She explains that in her family, they've always had a culture of coping. "We don't tell outsiders what is going on in our personal lives, at home. You deal with it yourself." But it becomes obvious through painstaking questioning that her arthritis impedes much of everyday life.

"If something dropped to the floor?" the doctor asks her. She shakes her head. "It would stay there." Putting clothes in the washing machine? "My daughter would do that for me. I was calling for my 12-year-old daughter to do a lot more to help me, helping me in and out of the bath, helping me in and out of bed in the morning," she says.

While the court adjourns to discuss her case, she explains how upset she was to have been found fit for work after her initial work capability assessment.

"They were telling me I was fit for work when I was screaming in pain. I was taking ibuprofen like sweets," she says. She stopped working only when the pain made it hard for her to get to work. "I loved that job. I always loved working with children."

"I know that there are people who are taking the piss, you see it on the news. But would I be sitting here going through the humiliation of being told to bend down, kneel down, if I could work? It wasn't very nice … the whole thing you have to go through."

The panel decides to overturn the original decision and award her the benefit.

The new system was devised under Labour, but campaigners blame this government for rolling it out nationwide last year, beginning the mammoth task of retesting all 1.6 million incapacity benefit claimants, at a rate of 11,000 a week, before the system was ready.

Atos has also been blamed for the high level of inaccuracies in the decisions, accused by one MP of "disastrous delivery" of the tests. Protesters have repeatedly mounted demonstrations outside their London offices, waving banners that declare "Atos doesn't give a toss" and "Atos kills!" – a reference to the small but growing number of claimants who have killed themselves after finding that their benefits have been removed. In a select committee report last year, MPs questioned whether as "a private company, you are driven by a profit motive", incentivised "to get the assessments done, but not necessarily to get the assessments right".

Staff at Atos say they believe it is "unfair" to blame their organisation for broader problems that have dogged the system. In a briefing last week, the company's communication team said they did not feel responsible for the chaos unfolding in the tribunals, pointing out that they were only responsible for the medical test, and that the decisions were made (based on the information they supply) by jobcentre staff.

"We strive to make sure our assessments are absolutely accurate," the official from Atos, who asked not to be named, says. (It took 18 months to organise an interview with Atos. The meeting was finally arranged on the agreement that the official would not be named.)

Was the number of people going to tribunal the result of a failing of the test? "To be honest, I don't think we know," he adds, unexpectedly open about the absence of communication between the different sections of the state carrying out this policy. "We would love to get more feedback [from the tribunals] so we could understand if there are systemic issues, but we just don't get that feedback."

Responding to all the criticism, the government has appointed Professor Malcolm Harrington to conduct a review of the system's failings, and has already implemented some improvements, but the welfare rights organisations say the complaints from claimants have not ended. Harrington is still working on new improvements, but has previously told the Guardian that he was "staggered and shocked" at the growing cost of tribunal appeals against decisions.

MPs from all over the country say constituents are still alerting them to problems. Jessica Morden, Labour MP for Newport East, told colleagues in a recent debate that her constituents were getting "caught in a cycle, in that they get zero points when they go for the work capability assessment, they wait seven months for an appeal, the decision is overturned and they immediately receive another letter asking them to take part in another round of assessments". The "stress and anxiety being placed on people with very serious conditions is unacceptable," she said.

There is some unease with a sense that indirect questions are put, in order deliberately to catch people out, and the way that "evidence is unofficially gathered". Labour's Pamela Nash said: "One of my constituents is deaf, but he was told that he could not possibly be deaf because he heard his name being called in the waiting room. Clearly, while he was waiting he was looking at the door in order to lip-read."

Tom Greatrex, who has campaigned consistently on this issue, voiced frustration that constituents with incurable progressive conditions were being called back for repeated assessments. "Common sense must be applied. If an individual is never going to get better, why should we reassess them? It is a waste of taxpayers' funds."

The delays in the tribunal hearings are causing unexpected knock-on problems. At the Agnes Smith Advice Centre, on the Blackbird Leys estate in Oxford, advice workers have become increasingly concerned about the number of people who come to them penniless because they have failed to attend their medical and have consequently been denied any state support. People have usually failed to turn up for legitimate reasons and have sometimes tried to warn the medical examiners that they would be unable to attend. While they are waiting for an appeal against the decision, they are not entitled to any benefit because of their apparent "non-compliance".

"One lady had suffered a stillbirth around the time the questionnaire was due back. One lady phoned Atos to say she could not attend the medical examination on its due date, and was told that a new appointment would be arranged, but received a letter the next day stating that her benefit had been stopped. Other people are simply too sick, mentally or physically, to deal with the questionnaire or attend the appointment," advice worker Cathy Wells explains.

"It is the most sick and vulnerable claimants who are likely to end up in this position. One of my clients is suffering from malnutrition, and is under the care of the mental health crisis team, who sometimes arrange for him to spend time as an inpatient on a psychiatric ward so that he can get some food and warmth."

The government remains attached to the policy, frequently pointing out that incapacity benefit has cost £135bn over the past decade; even with the cost of appeals and repeat assessments, the government will save large sums by removing benefits from a third of claimants. A spokeswoman adds: "We are committed to helping thousands of people move from benefits and back into work. Those found too sick or disabled to work won't be expected to and will continue to receive the help and support they need."

But Neil Coyle, of Disability Rights UK, said the government's attempt to redefine the very nature of disability was alarming. "The government's rhetoric seems to imply that many thousands of disabled people who will lose their benefits simply aren't disabled enough."